question for Jimmo and/or Jeremy - what CGT rate?

oldbikebloke

Given forfeiture of a deposit paid in respect of a (failed) property purchase is taxable on the recipient of the deposit as a CGT gain.
Question is: as case law has established that no CGT loss relief is available as a "property" asset has not been disposed of, what CGT rate applies to the person in receipt of the forfeit deposit: residential property rate (18/28%) or "standard" rate (10/20%)? 

jimmo

Forfeited deposits are treated as options.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12390

 

An option is an asset in its own right independent of the asset upon which it was granted.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12312

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12340

 

Whilst I have never dealt with such a case I would say the deposit (option) is not real property so standard rates apply.

Jeremy535897

That is a very interesting question. I think the answer lies in schedule 1B TCGA 1992, which defines a "residential property gain". See https://www.legislation.gov.uk/ukpga/1992/12/schedule/1B

If we start with section 144(7) TCGA 1992, it says:
"(7)This section shall apply in relation to a forfeited deposit of purchase money or other consideration money for a prospective purchase or other transaction which is abandoned as it applies in relation to the consideration for an option which binds the grantor to sell and which is not exercised."

Paragraph 4 of schedule 1B includes:

"(4)The grant of an option by a person binding the person to dispose of an interest in land is (so far as it would not otherwise be the case) regarded as a disposal of an interest in land by the person for the purposes of this Schedule.

(5)This does not affect the operation of section 144 in relation to the grant of the option (or otherwise)."

I therefore conclude that the residential property rate of capital gains tax applies (18%/28%). The fact that the capital gains tax regime in general treats a capital sum derived from an asset as a separate asset does not assist, as the gain on that separate asset is itself a residential property gain. However, it might be argued that section 144(7) applies only for the purposes of section 144, not schedule 1B, and therefore I am not 100% sure. I think that the intention of the law must be to apply the higher rate of tax, as I can think of no logical reason to distinguish a forfeited deposit from an option for that purpose, but who knows?